ENABLERS Act: Enhance your risk and compliance management
Increased money laundering regulation for professional services firms appears inevitable. Here’s how preparing now and getting ahead can drive long-term benefits.
For years, experts have warned professional service firms in the U.S. that they need to start preparing for money laundering regulations. And in recent months, those warnings have become impossible to ignore.
The latest and loudest alert came in July 2022, when the U.S. House of Representatives proposed the Establishing New Authorities for Businesses Laundering and Enabling Risks to Security (ENABLERS) Act. This bipartisan legislation, aimed at so-called gatekeepers, would expand anti-money laundering (AML) surveillance — currently required of financial institutions — to professional services firms, requiring accounting and law firms to collect, monitor, and report specific types of client information.
Scandals like the Pandora Papers and money laundering activities of Russian oligarchs have convinced lawmakers that AML obligations shouldn’t stop with banks. Under the Act, lawyers, accountants, and advisors would be required to have heightened reporting, increased client screening, enhanced anti-money laundering programs, and other know-your-customer (KYC) provisions typically ascribed to financial intermediaries. The regulations would take effect beginning in 2024.
Perhaps not surprisingly, the legislation has drawn objections from industry and professional associations that have historically advocated for self-regulation. They’ve cited significant concerns about the act’s impacts on lawyer- and advisor-client confidentiality, the trusted advisor role, and other ethical obligations.
Passage of the ENABLERS Act is not guaranteed. It’s currently an amendment to the National Defense Authorization Act (NDAA), which observers expect congress to vote on by December. It could undergo significant changes prior to the final vote, or not pass at all this year.
But with the government’s ever-increasing focus on expanding financial market supervision, eliminating money-laundering loopholes, and increasing transparency, the passage of legislation aimed at a broader group of financial intermediaries appears to be not a matter of “if” but “when.”
As a former member of the COO team of a global investment bank and the current general manager of a technology firm specializing in risk and compliance solutions for professional services firms, I understand how daunting new regulations like these may seem.
My advice to firm leaders is simple:
- Don’t delay. Proactively prepare by enhancing your KYC and AML processes.
- Focus on the long-term. Augmenting your firm’s risk and compliance programs can have ongoing, positive impacts on other aspects of your business.
What can you do now to prepare for the passage of the ENABLERS Act?
Professional services gatekeepers should promptly reassess their risk management and compliance programs, particularly their client onboarding due diligence, client data management, and monitoring processes. Developing or enhancing risk management oversight takes time and attention, but purpose-built tools and systems are available to help reduce the burden, streamline workflows, and improve efficiencies.
Most law, accounting, and consulting firms already maintain policies around governance oversight and risk management, but the rigor and complexity of systems currently in place to manage KYC procedures and AML compliance vary by firm size, client sector focus, service offerings, and geographic scope. There’s no one-size-fits-all solution.
Firms will have to find their own path, but they can get there by focusing on three key areas:
- Process — Now is the time to thoroughly review current policies and practices, including overall governance framework and risk and compliance protocols for assessing risks associated with accepting new clients and engagements, clearing conflicts, onboarding new business, monitoring engagement performance, and managing client relationships. You can also map out a plan for review and conduct a gap analysis against the newly proposed requirements.
- People — The risk and compliance team shouldn’t be the only function to prepare for the new regulatory requirements. Instead, a cross-functional evaluation of the client lifecycle and all touchpoints provides a better approach to comprehensively assessing your firm’s current risks, capabilities, and staffing needs. Enhancing team resources, upskilling staff, and identifying inefficiencies can create additional capacity to satisfy the new requirements and allow staff to allocate more time to higher-value work and analysis.
- Technology — It’s critical to determine if your firm’s current software is optimal enough to support more robust tracking, greater amounts of data, and enhanced reporting as required by the proposed legislation. Take this opportunity to reconsider the software tools currently in use at your firm, evaluate paper-based or manual processes, and identify areas prone to human error where automation and systems integration could mitigate risks and make adopting new regulations easier.
What long-term benefits could your firm realize?
Improving the effectiveness and efficiency of your firm’s risk and compliance regime could have other far-reaching benefits as a result of enhancements to data management, collaboration, and client relations.
Better data management
Lawyers, accountants, and other professional advisors already onboard new customers and gather and manage large volumes of client data and information. However, under the ENABLERS Act, gatekeepers must collect and organize even more data, conduct broader and deeper due diligence to verify a client’s identity, and track ownership structures, financial partners, existing relationships, networks, and referrals.
In addition to satisfying the regulations, access to better-quality data can provide a firm with valuable insights to make more informed decisions. It can also improve internal reporting, creating more transparency and better audit trails. Furthermore, enhancing data management to handle increased data volume can also create greater efficiencies, leading to quicker onboarding and revenue growth.
One major goal that many professional service firms strive to achieve is to improve collaboration across different practice areas, geographies, and functions so they can operate more effectively. To accomplish this, firms need tools that allow staff to effortlessly connect while also complying with risk-and-compliance protocols — regardless of whether the work occurs on site or at a remote location.
Providing staff with the ability to store client data centrally and securely — and access it in a controlled and closely managed way from wherever they’re working — helps them collaborate more efficiently. As a result, advisors can better serve clients and provide them with greater and faster access to a firm’s expertise as situations change and evolve. Additionally, becoming a seamlessly connected firm with a collaborative culture can build trust between functional areas, cultivate relationships and team building, improve problem-solving and decision-making, increase job satisfaction, and enhance productivity.
Superior client relations
As my colleague and risk management expert Meg Block notes, preparing for the requirements of the ENABLERS Act will require firms to review client onboarding procedures and create additional mechanisms for ongoing monitoring throughout the client lifecycle. This process could create long-term benefits. “By integrating third-party data with compliance tools, firms can have better visibility of risk rankings with rapid detection of trigger events affecting a client’s risk position, such as ownership, legal, or financial-status changes,” Block explained.
At the same time, closely managing and tracking all the touchpoints of the client journey dovetails with the way client-facing functions benchmark the client experience. By collaborating on the design of protocols, processes, and information collection, compliance professionals and business development staff can mitigate financial and business risks while improving the client experience.
Augmenting client vetting procedures can help firms better understand their clients’ preferences and expectations at the outset of an engagement. Additionally, identifying the full range of client needs can result in cross-selling and revenue-generating opportunities.
Enhanced onboarding measures can lead to a more positive, frictionless experience for clients. Gathering information at every point in the client lifecycle can provide a firm with valuable feedback to inform client service improvements and increase client retention, overall satisfaction, and superior client relations.
Whether or not the ENABLERS Act passes this year, the message is clear: Professional services firms need to prepare for AML regulatory requirements. By starting now, firms can better understand how the regulations may affect them and where they need to focus.
Mapping out the client matter lifecycle and identifying the systems currently in use will jumpstart your project plan. With attention to the three key pillars — process, people, and technology — your firm can leverage the optimal tools and resources to serve clients effectively as their needs and financial, legislative, and business trends warrant change in the future.
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